Oxfam Report is Wrong on the Problems of the Tax Code and Misses the Need for Reform

In its 2017 report on corporate taxation, Oxfam America uses numerous misleading or inaccurate statements to argue that U.S. businesses do not pay their fair share of taxes.

In page after page, the report misses the mark. It mixes effective tax rates and statutory tax rates to claim that businesses pay a rate far lower than they should.

The report also ignores the true reason that trillions of dollars of U.S. income is trapped overseas -- the U.S. has one of the most complex, internationally uncompetitive tax codes and double taxes income earned abroad. As a result, this money is unable to be reinvested back into the economy.

Businesses don’t pay taxes – people do, so any higher tax rate on businesses is passed onto employees, consumers, and investors. The problems with the U.S. tax code hurt American taxpayers through lower wages, fewer jobs, and stagnant economic growth.

Contrary to the claims of the report, the House Republican “Better Way” Tax Reform blueprint would reverse these trends. The plan, proposed by House Speaker Paul Ryan (R-Wis.) and Ways and Means Chairman Kevin Brady (R-Texas), makes numerous dramatic pro-growth changes that will increase income for taxpayers across the board, and give a booster shot to the U.S. economy.

U.S. Tax Rates Are High By Any Measure
The report claims that U.S. companies do not pay enough in taxes because they have an effective rate of just 25.9 percent even though the corporate rate is 35 percent. However, this analysis purposely compares effective tax rates with statutory marginal tax rates to make it appear as if companies are paying less in taxes than they are supposed to.

There is a clear distinction between statutory rates and effective rates. The statutory rate is specified in law and applies to business income before any deductions. In contrast, the effective rate is the percentage a business actually pays in income tax. The effective corporate tax rate is calculated after a business takes deductions – such as employee wages and benefits.

In almost every case, the effective rate is lower than the statutory rate for taxpayers. While the U.S. combined state/federal corporate rate for ALL U.S. corporations is 39.1 percent, the effective corporate tax rate is just 18.6 percent after deductions and credits.

By any measure, the U.S. rate is too high. The U.S. has the highest statutory rate amongst the major economies of the Group of 20, as noted by the Congressional Budget Office. Major competitors have rates ten or twenty points lower including Canada (26.3 percent), China (25 percent), and the United Kingdom (20 percent).

Even when using effective tax rates, the U.S. has the fourth highest rate in the world. At a rate of 18.6 the U.S. effective rate is higher than Germany (15.5 percent), Australia (10.4 percent), China (10 percent), and Canada (8.5 percent).

Trillions Trapped Overseas Due to Complex Worldwide System of Taxation
This U.S. competitiveness problem has only gotten worse in recent years as other countries have modernized their tax codes. Today, only six modern countries have this system, and more than a dozen have abolished it for the simpler, more competitive territorial system of taxation.

While the Oxfam report alleges that trillions are “stashed” overseas, this money is actually stranded because of the U.S. worldwide tax system. The second layer of tax stemming from the U.S. worldwide system impedes the ability of U.S. businesses to compete and means these trillions are in limbo, unable to be brought back to America to be reinvested in new jobs or higher wages or paid out to shareholders.

The solution to this problem should be simple – enact repatriation at a single digit rate as part of a transition to territoriality, so that businesses can bring back after tax income with the second layer of taxation.

This would end the lockout problem for good and give the U.S. economy a booster a strong boost as occurred when Congress enacted temporary repatriation in 2005. This repatriation allowed businesses to bring back double taxed income that had been deferred at a rate of 5.25 percent, resulting in $320 billion returning to the country that went to federal revenues, or was reinvested in the economy.

The Real Problem is the Outdated U.S. Tax CodeThe Oxfam report misses that the fact that the many legal, yet self proclaimed "tax dodging" strategies are symptoms of a tax code that is overly complex and outdated. When it comes to globally tax competition, the U.S. is decades behind.

Since 2000, 32 of the 35 countries in the Organisation for Economic Development (OECD) have reduced their corporate rates. Today, only the U.S. and Chile have higher corporate tax rates than they did at the start of the century.

The winners here are not U.S. businesses, but foreign countries and corporations that benefit from new jobs, higher wages, economic growth, and revenue at the expense of American taxpayers and businesses.

Between 2004 and 2014, almost 50 American businesses left the country through an inversion. When these companies move their headquarters from the U.S. to a more competitive environment, they also take high paying jobs with them.

Similarly, the U.S. had a net loss of nearly $180 billion in assets that have been acquired by foreign competitors over the past decade, according to a report by Ernst and Young. The uncompetitive code means that foreign competitors are able to acquire assets at a far greater pace than American businesses. The report estimates that a corporate rate at the developed average of 25 percent would have resulted in U.S. businesses acquiring almost $600 billion in assets over the same period.

The House GOP Blueprint is Strongly Pro-GrowthMaintaining high tax rates and an uncompetitive system does not only hurt U.S. businesses; it is passed on to the entire economy. A 2006 CBO report found that roughly 70 percent of the corporate tax is borne by labor, while a report by scholars at the American Enterprise Institute find that every dollar increase in taxes decreases wages by two dollars.

Any proposal must involve changes to the tax code, not new rules that have already tried and failed.

One way to resolve the many problems with the U.S. tax code would be passing the House Republican “Better Way” Tax Reform Blueprint. Among the many pro-growth changes, the plan calls for a competitive 20 percent corporate rate, full territoriality, and immediate full business expensing.

Despite the fact that this plan is hugely pro-growth, the Oxfam report falsely claims that the blueprint would not fix the problems with the code, and would hurt consumers.

In reality, the plan increases wages, and offers a net tax cut for all American families. The new border-adjusted cash flow business tax would incentivize doing business in the U.S. by taxing based on where a good or service is consumed, rather than where the income is earned. This plan cuts taxes for all businesses by 42 percent, and dramatically decreases the complexity of the tax code. This competitive new system will put an end to the exodus of jobs and assets to foreign competitors.

Every developed country in the world has a border adjustable tax system except the U.S., which disadvantages American businesses operating overseas and offers a benefit to foreign competitors importing into the country.

While the border adjustable component of the plan raises one trillion in revenue over a decade, the plan is a net tax cut of more than two trillion dollars. In fact, according to an analysis by the Tax Foundation, this plan will increase wages by close to $5,000 per family, create 1.7 million full time jobs, and increase economic growth by 9 percent.

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In a recent announcement from the White House, President Donald Trump has followed through on his promises to protect American intellectual property rights. As a candidate, President Trump claimed that protecting intellectual property rights could “save millions of American jobs.” The recent Presidential Memorandum signing directs the United States Trade Representative to examine whether China should be investigated for “unreasonable or discriminatory policies that may harm American IP rights, innovation, or technological development.”

Americans for Tax Reform sent out a letter praising President Trump for his commitment to intellectual property rights. Americans for Tax Reform, along with 69 other groups, have agreed upon principles of which are the utmost importance in preserving intellectual property rights both at home and abroad. These principles include that IP rights are vital to job growth and economic competitiveness. We believe China has been particularly brazen in coopting American innovation and profiting from American investment in research, development, and intellectual capital. Practices by China to restrict market entrance and technology transfer have been a particular hindrance.

Today, Americans for Tax Reform launched a significant campaign across a number of different electronic media, highlighting the need to stop those Obamacare taxes that haven't yet taken effect - particularly the Health Insurance Tax - while we work toward the repeal of all Obamacare taxes.

We need to get rid of all Obamacare taxes. Allowing more Obamacare taxes to go into effect should simply be out of the question.

The effort to fully abolish the Obamacare tax burden on families and businesses should be divided into two steps:

In the short-term, Congress must quickly act to ensure that the health insurance tax and medical device tax are delayed. Failing to act will mean both taxes go into effect at the end of 2018, which will cause costs to skyrocket even higher.

At the same time, lawmakers must continue to press for the repeal of all of the Obamacare trillion dollars in new or higher taxes. These taxes have increased healthcare costs, restricted access to care, and harmed economic growth. Since its inception, Obamacare has imposed numerous taxes on the American people including a tax for failing to purchase government approved health insurance, a tax on innovative medicines, multiple taxes on Health Savings Accounts and Flexible Spending Accounts, and even a tax on families with high medical bills.

All of these taxes impact the middle class - either directly hitting families' paychecks or by increasing the cost of healthcare goods and services. On the other hand, repealing these taxes will reduce the federal government's control over healthcare and return power to caregivers and patients.

While all Obamacare taxes should be repealed, lawmakers must also act quickly to ensure that they do not allow a tax hike to go into effect under their watch. If they fail to act, the medical device tax and health insurance tax will become law on January 1, 2018, resulting in higher premiums and higher costs for middle class families, seniors, and small businesses.

The Obamacare health insurance tax hits 11 million households that purchase through the individual insurance market and 23 million households covered through their jobs. Half of this tax is paid by those earning less than $50,000 a year and it is responsible for increasing premiums by an average of $5,000 per family over a decade according to research by the American Action Forum.

The health insurance tax also hits 1.7 million small businesses, costing an estimated 286,000 small business jobs and $33 billion in lost sales.

The $30 billion medical device tax is similarly harmful to businesses. It could cost as many as 25,000 lost jobs by 2021 if it is not delayed, and because it is levied as an excise tax on medical devices, the costs of this tax are almost entirely passed onto consumers in the form of higher products, as noted by the Congressional Research Service.

Obamacare's taxes have already driven costs up, reduced choice, and needlessly punished American families with higher taxes. The last thing that taxpayers need or deserve is even more damaging Obamacare taxes to go into effect.

Instead, Congress should work on healthcare reform that is focused on lower costs that includes repeal of Obamacare taxes -- first by ensuring that the health insurance tax and medical device tax do not go into effect -- and then working to repeal all trillion dollars of the law's taxes.

Americans for Tax Reform President Grover Norquist this week issued the following statement praising President Trump’s Executive Order that seeks to increase accountability and efficiency in the review and permitting process for infrastructure projects.

“President Trump’s Executive Order issued this week represents a much needed step in reducing waste and inefficiency in the environmental review and permitting process for infrastructure projects.

“For too long permitting and review processes surrounding U.S. infrastructure projects have been mired in a sea of red tape and bureaucratic roadblocks. Needed improvements to the highways, tunnels, roads and bridges that keep America moving are delayed and the costs driven up.

“According to the Government Accountability Office, complex infrastructure projects can be delayed for an average of 7 years while going through the environmental review process. Studies show that an average 6-7 year delay for major infrastructure projects costs the American economy over $3.7 trillion dollars.

“The Executive Order issued by President Trump this week would be a first step in correcting these issues. Under the President’s Executive Order, a 2-year timeline is established for the Federal Government to process reviews and permits for major infrastructure projects.

“The Executive Order also requires agencies to track the costs of conducting reviews and making permitting decisions. The Order further replaces the patchwork of agency reviews with a consolidated approach that establishes a One Federal Decision Policy, whereby one Federal agency will take the lead on reviews and permitting decisions.

“President Trump’s actions this week will begin the process of improving the efficiency with which American infrastructure projects are carried out by increasing agency accountability, streamlining the permitting and review processes, and inevitably saving U.S. taxpayer dollars.”

The IRS has a long history of taxpayer abuse and utter incompetence, and the latest Treasury Inspector General for Tax Administration (TIGTA) report shows this is still the case. Throughout January 2015 to March 2016, the IRS rehired more than 200 employees who were previously employed by the agency, but fired for previous conduct or performance issues.

One would hope that the tax collecting arm of the federal government would hire employees of the upmost character and work effort “given the substantial threat of identity theft and the magnitude of sensitive information that the IRS holds”. In the hopes of ensuring that the IRS holds themselves to high standards, and exposing them when they don’t, TIGTA audits the IRS and makes policy recommendations, compiling their findings in reports submitted to Congress.

According to their report:

86 of the 213 employees rehired were previously fired for abuse of absence/leave, workplace disruption, or a failure to follow instructions

“27 former employees failed to disclose a prior termination or conviction on their application, as required, and were rehired by the IRS”

Four former employees were rehired after they “separated while under investigation for unauthorized accesses to taxpayer information”

“One rehired employee had several misdemeanors for theft and a felony for possession of a forgery device”

“Another rehired employee had threatened his or her co-workers”

A number of other rehired employees “willfully failed to meet their Federal tax responsibilities”

Prior TIGTA reports identified the same issue at hand in years past, but found that despite pressure for reform, the IRS did not update any hiring procedures, resulting in another year of continued practices of hiring incompetent employees, setting the stage for taxpayer neglect and abuse.

The Oregon Legislature is about to make unfortunate history as the first state to enact a bike tax. This comes as a surprise since Oregon, especially Portland, is known for its avid cycling culture. The state is even home to the head of the Congressional Bike Caucus, Rep. Earl Blumenauer (OR-3). Despite these factors, government proves yet again that it will tax anything that moves.

This unprecedented tax is part of a $5.3 billion transportation package that Democratic Gov. Kate Brown is expected to sign into law later this month. Once enacted, all bike purchases over $200 with a wheel diameter of at least 26 inches will be subject to a $15 tax. It is expected to cost the taxpaying cyclists of Oregon $1.2 million per year.

While the government states the funds will be used to improve non-motorized transportation, some Oregonians remain skeptical, like Bill Cole, owner of Wheelworks Bicycle Shop in Eugene, OR.

“The idea of having money going directly to support bicycling I think is a good idea. But once a tax gets started, it never stops. And it only increases,” Cole said.

Not only are consumers adversely affected by this tax, but local bike shops will especially feel its consequences. In specialty bike stores where more mid- to high-end bikes are sold, the average price of a bicycle is $714. As a result, the vast majority of purchases will be subject to the tax. However, big box retailers that sell cheaper bikes, at an average of $82, will typically avoid the tax and its negative effects. By indirectly targeting “mom and pop” bike stores, Oregon’s new tax will harm these small businesses.

Opposition to this tax has brought together groups—conservatives and environmentalists—that generally find little to agree upon. By taxing biking, a healthy and environmentally friendly method of transportation and leisure, the Oregon legislature sends the message that it cares more about revenue than both taxpayer well-being and environmental concerns.

By singling out a single product and activity to punitive taxation, the Oregon bike tax represents the exact opposite of sound policy. As a lone positive takeaway from this misguided tax, this situation presents an opportunity to educate progressive bike tax opponents who typically endorse higher taxes in other areas. If a tax on new bikes leads to fewer people biking or purchasing bikes, as cycling advocates have stated, then the same can be said for higher taxes on income and investment.

Following the failure to pass conservative healthcare reform that included repeal of key parts of Obamacare, Congressional Republicans have said they will now pursue smaller reforms aimed at reducing costs and stablizing the markets.

While the debate will likely focus on the size and scope of regulations and subsidies, lawmakers should also push to repeal Obamacare’s many burdensome taxes. The effort to reduce the Obamacare tax burden on families and businesses should be divided into two steps.

In the short-term, Congress must quickly act to ensure that the health insurance tax and medical device tax are delayed. Failing to act will mean both taxes go into effect at the end of 2018, which will cause costs to skyrocket even higher.

Over the long-term, lawmakers must repeal Obamacare’s trillion dollars in new or higher taxes. These taxes have increased healthcare costs, restricted access to care, and harmed economic growth.

Since its inception, Obamacare has imposed numerous taxes on the American people including a tax for failing to purchase government approved health insurance, a tax on innovative medicines, multiple taxes on Health Savings Accounts and Flexible Spending Accounts, and even a tax on families with high medical bills.

All of these taxes impact the middle class – either directly hitting families’ paychecks or by increasing the cost of healthcare goods and services. On the other hand, repealing these taxes will reduce the federal government’s control over healthcare and return power to caregivers and patients.

While all Obamacare taxes should be repealed, lawmakers must also act quickly to ensure that they do not allow a tax hike to go into effect under their watch. If they fail to act, the medical device tax and health insurance tax will become law on January 1, 2018, resulting in higher premiums and higher costs for middle class families, seniors, and small businesses.

The Obamacare health insurance tax hits 11 million households that purchase through the individual insurance market and 23 million households covered through their jobs. Half of this tax is paid by those earning less than $50,000 a year and it is responsible for increasing premiums by an average of $5,000 per family over a decade according to research by the American Action Forum.

The health insurance tax also hits 1.7 million small businesses, costing an estimated 286,000 small business jobs and $33 billion in lost sales.

The $30 billion medical device tax is similarly harmful to businesses. It could cost as many as 25,000 lost jobs by 2021 if it is not delayed, and because it is levied as an excise tax on medical devices, the costs of this tax are almost entirely passed onto consumers in the form of higher products, as noted by the Congressional Research Service.

Obamacare’s taxes have already driven costs up, reduced choice, and needlessly punished American families with higher taxes. The last thing that taxpayers need or deserve is even more damaging Obamacare taxes to go into effect.

Instead, Congress should work on healthcare reform that is focused on lower costs that includes repeal of Obamacare taxes– first by ensuring that the health insurance tax and medical device tax do not go into effect, and then working to repeal all trillion dollars of the law’s taxes.

Recently, the Institut économique Molinari (IEM) released a study to compare the tax and social security burdens of individual employees earning a typical salary in the European Union. Using this data, they worked out the “Tax Liberation Day” for each nation, the day of the year when employees would earn enough to pay their annual tax burden.

Essentially, it marks the day workers stop working earning money for the government and instead begin working for themselves. The further into the year the day is, the greater burden each government places upon its citizens.

Workers across the EU saw an average real tax rate of 44.8%, nearly half of which (44.4%) is invisible to the employees themselves through payroll taxes. This is a marginal decrease from 2016, which had a rate of 44.96%. The “real tax rate” is calculated by adding social security contributions, income tax, and value added taxes, then dividing this number by the real gross salary.

The nation with the highest tax rate was France, coming in at 57.41% and a Tax Liberation of July 29th, where it has been for the last three years. Hungarian workers have also seen a significant gain, moving from August 6th in 2010 to July 5th. However, Greece has moved the opposite direction, from June 13th in 2010 to July 10th.

According to the study, the future seems difficult for European workers, who are spending more money on pensions and health care expenditures, but have a declining labor force participating, despite decreased unemployment. It concludes that the best hope against future tax increases is decreased expenditures and economic growth. The study and a full list of where the Tax Liberation Day lands for each European Union nation can be found here.

Lawmakers must act to prevent Obamacare taxes from going into effect next year, 36 conservative groups and activists wrote in a letter addressed to House Speaker Paul Ryan (R-Wis.) and Senate Majority Leader Mitch McConnell (R-Ky.).

Absent Congressional action, the Obamacare health insurance tax and medical device tax will both go into effect in 2018. As the coalition notes, this would be unacceptable and would harm taxpayers across the country:

"Unless Congress acts soon, both tax increases will go into effect on January 1, 2018, leading to higher premiums and higher costs for middle class families, seniors, and small businesses."

Specifically both taxes directly harm middle class families and small businesses. For example, half of the Obamacare health insurance tax is paid by those earning less than $50,000 a year and it increases premiums by as much as $5,000 per family. Similarly, it is estimated the medical device tax could lead to more than 25,000 lost jobs by 2021.

As such it is imperative that Congress stops these taxes from going into effect next year as soon as possible.

The Honorable Paul D. RyanSpeaker, United States House of RepresentativesH-232, The CapitolWashington, D.C. 20515

The Honorable Mitch McConnellMajority Leader, United States SenateS-230, The CapitolWashington, D.C. 20510

Dear Speaker Ryan & Leader McConnell:

We write to urge you to prevent Obamacare’s tax on Americans’ health insurance and the medical device tax from going into effect in 2018. Unless Congress acts soon, both tax increases will go into effect on January 1, 2018, leading to higher premiums and higher costs for middle class families, seniors, and small businesses.

Ideally, both the health insurance tax and medical device tax should be repealed permanently, as should all one trillion dollars of Obamacare taxes. However, given the recent collapse of healthcare reform legislation, lawmakers should act to delay these two taxes so they do not hit taxpayers in 2018.

Allowing the health insurance tax to go into effect in 2018 will directly hurt middle and low-income families. Half of the tax is paid by those earning less than $50,000 a year and it will increase premiums by $5,000 per family over the next decade according to research by the American Action Forum.

In total, the tax hits 11 million households that purchase through the individual insurance market and 23 million households covered through their jobs. Next year alone, the tax will total $14.3 billion. Over a decade, these taxpayers will pay roughly $150 billion more if the tax is not repealed.

The health insurance tax is also devastating to small businesses. It is estimated to directly impact as many as 1.7 million small businesses. According to the National Federation of Independent Business, the tax could cost up to 286,000 in new jobs and cost small businesses $33 billion in lost sales by 2023.

The 2.3 percent medical device tax is also harmful to small businesses. There are more than 6,500 medical device companies in the U.S., 80 percent of which have fewer than 50 employees. The industry contributes $150 billion annually to the economy. The tax impairs the industry’s ability to innovate, invest, and create jobs.

If Congress allows it to go into effect in 2018, the medical device tax could lead to more than 25,000 lost jobs by 2021. Over the next decade, this excise tax is projected to increase taxes by $30 billion.

Small businesses account for half of all jobs in the U.S. and two-thirds of new jobs in recent decades, so the health insurance tax and medical device tax mean businesses are able to spend less on new workers, higher wages, or new equipment.

Absent full repeal, Congress must use the remaining months of the year to delay the health insurance tax and medical device tax so they do not go into effect in 2018 and increase taxes.

Congress’ failure thus far to repeal Obamacare taxes – including the tax on Americans facing high medical bills, taxes on health savings accounts, a tax on prescription medicines,and the tax for failing to buy health insurance—have already been devastating to American families, seniors, and businesses.

As you continue working to repeal these taxes, the last thing taxpayers need is even more taxes to go into effect.

In February of this year President Trump issued Executive Order 13772 which ordered the Department of the Treasury to develop a report relating to U.S. financial regulations and how to make existing regulation consistent with a framework of Core Principles set out by the Administration. In doing so President Trump sought to make the financial system work for everyday Americans.

Secretary Steven Mnuchin directed the Treasury to make suggestions within the Report that would drive the Treasury to become more in line with the set of Core Principles. One major conclusion reached within the Report was that Section 1071 of the 2010 Dodd-Frank Act should be repealed.

Section 1071 was passed as part of the 2010 Dodd-Frank Act and while the rule still has yet to be implemented, the Consumer Financial Protection Bureau (CFPB) under Director Richard Cordray has evidenced that a rulemaking will happen soon.

Section 1071 requires the CFPB to issue regulations that force financial institutions to collect and maintain data on consumers who apply for small business loans. Financial institutions are then required to report that data to the CFPB. Some of the data that is required to be collected includes the purpose of the loan, the race, sex, or ethnicity of the business owners, and if the businesses are minority or women-owned.

This regulation, while well intended, allows the CFPB to reach further into the private sector and would impose a new regime of unnecessary and burdensome costs that would hurt not only small financial institutions, but also financial consumers.

Section 1071 would increase borrowing costs for businesses, especially small ones, as the costs of compliance is passed through. Even though the CFPB’s reasoning for the rule is to prevent discriminatory lending practices, such practices are already against the law pursuant to the Equal Credit Opportunity Act (ECOA), as well as a plethora of state fair lending laws.

The U.S. House this past June passed the Financial CHOICE Act (H.R. 10), which included provisions that would prevent this harmful rule from ever being enacted. However the Financial CHOICE Act faces an uphill battle in the Senate and CFPB Director Richard Cordray has made it clear that the rule is going to be implemented. Secretary Mnuchin’s suggestion to repeal this costly and duplicative rule is imperative for small businesses, their owners and the health of America’s small lenders. Lawmakers in Congress should follow suit.

West Virginia governor’s switch from D to R means GOP has full control of legislative and executive branch in 26 states; Dems have full control in just 6 states

West Virginia Gov. Jim Justice (D) announced his intention to join the Republican Party, switching the state to full Republican control. The GOP now has full control of the legislative and executive branch in 26 states.

Democrats only have full control of the legislative and executive branch in six states.